What’s Next For HIMS Stock?

The stock price of Hims & Hers Health (NYSE: HIMS), a telehealth platform, has risen a solid 14% in a week. Much of this move came after the U.S. FDA asked for more time to confirm the shortage of Eli Lilly’s weight loss drug – Zepbound. The shortage of GLP-1 drugs bodes well for Hims & Hers, which sells generic versions of weight loss drugs.

HIMS stock has had a volatile ride this month, with its stock plunging 30% from levels of around $28 on November 13 to $19 on November 15, before rising again to $24 now. The decline HIMS stock saw can be attributed to Amazon’s launch of a rival service. Amazon will offer lower pricing for a clinical visit and treatment plan for a range of common health, beauty, and lifestyle concerns.

Looking at a slightly longer term, HIMS stock has seen a solid 270% rise from levels of around $7 in early 2022 to $24 now. This can primarily be attributed to:

1. a 357% rise in the company’s revenue from $272 million in 2021 to $1.2 billion now; partly offset by
2. a 22% rise in total shares outstanding to 228 million; and
3. a 2% fall in the company’s P/S ratio to 4.4x now, versus 4.5x in 2021.

1. What’s Behind Hims & Hers Surging Sales?

Hims and Hers is an online platform that connects patients with licensed healthcare professionals and offers treatments for a range of conditions, including hair loss and sexual wellness, among others. Hims & Hers revenue comprises retail and wholesale sales, with retail accounting for 97% of the company’s total sales. The rise in the company’s revenue can be attributed to the surge in demand for GLP-1 drugs for weight-loss. While the likes of Zepbound are in short supply, Hims & Hers is benefiting from selling the generic versions of weight loss drugs. The total subscribers on Hims & Hers platform have nearly quadrupled from 0.5 million in 2021 to over 2 million now. Also, the average revenue per average subscriber has improved from $51 to $60 over the same period. The company has expanded its offerings lately, bolstering its subscriber growth.

2. How Are Hims & Hers Profit Margins Trending?

Although Hims & Hers was loss making (on a reported basis) till 2023, it has turned profitable now. Its operating loss stood at $29 million in 2023, versus $115 million in 2021. However, looking at the last twelve-month period, it has reported operating income of $43 million. The operating income margin has improved from -42.3% in 2021 to 3.5% now.

3. Does HIMS Stock Offer Any Room For Growth?

HIMS stock has risen a stellar 167% this year, outperforming the broader markets, with the S&P500 index rising 26%. Even if we look at a slightly longer term, the changes in HIMS stock over the recent years have been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were -55% in 2021, -2% in 2022, and 39% in 2023.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment and shortage for the branded weight-loss drugs, could HIMS face a similar situation as it did in 2021 and underperform the S&P over the next 12 months — or will it see a strong jump? After its recent surge, we think HIMS stock is now fully priced at levels of $24. The U.S. FDA will inform the court about its decision to list Zepbound in short supply by December 19. Usually, the generic drugs are permitted if the branded drug is in short supply. Now, Eli Lilly has been focused on expanding its capacity to meet the rising demand. Sooner or later, Zepbound will not be part of the short supply list and Hims & Hers will have to focus on their other offerings to drive sales growth. With Amazon’s lower price-point offerings, it’s likely not going to be an easy ride for Hims & Hers. HIMS stock is trading at 4.4x trailing revenues, close to the 4.5x figure seen in 2021, and we don’t see any reason to expand its valuation multiple. As such, we think that HIMS stock is appropriately priced at levels of $24.

While HIMS stock looks like it is fully priced, it is helpful to see valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 11/22/2024
[2] Cumulative total returns since the end of 2016

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